Misrepresentation, Non-Disclosure and Breach ... - Law Commission

(1) Where a member has made a deliberate or reckless
misrepresentation, but the insurer would have given a certain level
of “free cover” without that information, should the insurer be
entitled to refuse all benefits in respect of that member?
Alternatively, should the insurer be obliged to provide the free
cover that would have been provided in any event, provided the
basic eligibility criteria for the scheme are met?
(2) Do consultees agree that a non-disclosure or misrepresentation by
the policyholder, that is the employer, should provide the insurer
with the same rights to avoid a policy as would apply to other
business insurance?
6.41 We ask consultees if they have experience of problems in other types of
group insurance, other than those written by employers in respect of
employees. For these types of policy, should a misrepresentation or nondisclosure
by a group member be treated as if the group member were the
policyholder and had arranged the insurance directly with the insurer?
CO-INSURANCE
6.42 Two or more people may wish to take out an insurance policy together. They may
do this because they share the same interest or, in Scotland, right in the subject
matter of the insurance (as with spouses insuring the matrimonial home) or for
convenience, because they each have an interest or right in the subject matter of
the insurance (for example, a landlord and tenant). Companies within the same
corporate group may wish to arrange insurance together in order to obtain
insurance more efficiently and at a lower premium. Where a single insurance
policy covers two or more policyholders, the policy is said to be one of coinsurance.
6.43 If one of the co-insureds under a policy of co-insurance fails to disclose or
misrepresents a material fact during the placement of the insurance, an issue
arises as to whether the other co-insureds are prevented from recovering under
the policy as a result of their co-insured’s wrongdoing.
The current law
6.44 The law draws a distinction between “joint” policies and “composite” (or “several”)
policies. Co-insureds under a joint policy stand or fall together. However, where
the policy is composite, an innocent co-insured is unaffected by their fellow coinsured’s
failure in their disclosure obligations. 6
6
In Woolcott v Sun Alliance and London Insurance Ltd [1978] 1 Lloyd’s Rep 629 the policy
was composite, and it is implicit that a different decision would have been reached had the
policy been joint. In 1924, in the context of wilful misconduct by one co-insured but not the
other, Lord Sumner commented: “fraud is not something absolute, existing in vacuo; it is a
fraud upon someone. A man who tries to cheat his underwriters fails if they find him out,
but how does his wrong invest them with new rights against innocent strangers to it?”: P
Samuel & Co Ltd v Dumas [1924] AC 431 at p 469.
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